Stock Options Analysis

Original Articles

The Stock Options Analysis section is an area designated for various original articles and essays related to option trading and option trading strategies with a special emphasis on Leveraged Investing.

There's no shortage of ideas to explore and discuss when it comes to trading stock options. I've enjoyed watching this area of the site grow over time, and I hope it adds value to your visit. If you would like to be notified when a new original article is added to this page, please consider subscribing to the Great Option Article Alert via the form at the bottom of this page (you'll also receive a special thank-you gift for doing so).

Please note: in order to keep this page manageable, certain original articles have been grouped together and moved to their own section, such as in the Stock Investing Advice and Dividend Stock Investing sections.

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If you haven't done so already, and if you read nothing else on this site, please read my original essay, Leveraged Investing or No Substitute for Planting a Tree


Original Articles - Stock Options Analysis

OPTION TRADING

Why I Won't Trade Iron Condors - Don't let their cool sounding name deceive you - iron condors can be merciless birds who devour large chunks of your capital. Here's why you should think twice before trading them.

Investment Income from Options - Here are 2 smart option trading methods for generating sustainable investment income.

How to Become a More Disciplined and Patient Trader - Want to be a more disciplined trader? The solution I found to increased trading patience and discipline might surprise you.

How to Avoid Catastrophic Option Trading Losses - Catastrophic option losses are completely avoidable in my opinion - as long as you're not making either of these structurally risky mistakes.

Standard Deviation vs. Technical Analysis for Option Traders - If you want to be a successful option trader, you're going to want to incorporate some kind of strategy designed to give you insights about a stock's likely future performance. In general, that means choosing between standard deviation (statistics) or technical analysis. So which approach is right for you?

Option Trading Tips - 4 Part Series - Overview of my 4 part Option Trading Tips series where I share my best advice for those new or relatively new to options.

Consider Selling Options - Part 1 of 4 - You basically have two choices when it comes to trading options - you can either be a net buyer of options, or a net seller. In this article, I explain why I'm a net seller of options and detail the structural advantages of doing so.

Avoid Chasing Option Premium - Part 2 of 4 - As a net seller of options, one of your greatest temptations will be the temptation to chase premium, to justify lowering your quality and trade set up standards because of the potential outsized gains you see in lesser quality (i.e. higher risk) trades.

Be Wary of Monthly Option Income Needs - Part 3 of 4 - In general, the more consistent and frequent you want or need to be paid, the less you'll have to settle for. So how do you balance your monthly income needs with what your option selling generates?

Learn From Every Trade (Keep an Option Trading Journal) - Part 4 of 4 - Not everyone wants to heart this, but it's true. If you want to be a successful trader, you'll need to keep some kind of trading journal. The good news is that this can be fun and customized in a way that works for you.

Drawbacks of Trading Illiquid Options - It's important that you understand the drawbacks to trading illiquid options. In this article, we look at the impact of illiquidity in terms on option pricing and your ability to roll and otherwise adjust positions.

Option Trading Secrets Revealed: There Are None! - Just because you don't know how something works, or you don't have a lot of direct experience with something, doesn't mean there are actual secrets involved. It just means you lack knowledge and/or experience. Anyone who tells you otherwise is manipulating and disrespecting you.

The Hidden Risk of Option Income Trading - The biggest risk involving option income trading, in my opinion, comes from "needing" your trades to consistently generate a certain amount of income each and every month. Option income can be very lucrative, but the more lucrative it is, the more irregular it will be as well.

The Profound Difference Between Debit and Credit Spreads - Does your own psychology determine whether you're drawn more toward net debit or more toward net credit strategies? In this article, we look at the structural differences between net debit and net credit trades and what that says about the individuals who trade them.

Why I Don't Buy LEAPS - There may be a place for LEAPS (Long Terms Equity AnticiPation Securities) or basically very long dated options (both on the call side and the put side) in the portfolios of both long term investors and intermedicate traders, and yet I resist simple buy and hold LEAPS strategies. In this article, I detail what I see as the three primary drawbacks to such a strategy.

In Defense of the Option Trader - Leveraged Investing, or value investing with options, is all about trading options from the perpective of a long term investor. Even so, in this article, I make the case for the speculative option trader who understands the risks involved and knows what he or she is doing, and more importantly, why.

The Myth of Monthly Cash Flow - In this article I make the case that if you want to be successful generating high yield income from your option trades, you'll ditch the monthly income quota mindset.



VALUE INVESTING AND OPTIONS

Please Note - The Value Investing and Options section is accessible here



MARKETS AND INVESTING

Fire Hydrant Investing - What kind of investor are you? Here's my investing epiphany based on an interesting and amusing scene I witnessed from my own driveway.

2 Industries You Should Never Invest In - Are there any industries you shouldn't invest in or trade on ethical or moral grounds? Or how do you respond to others who criticize your investments? I propose a 3 step solution to both questions. See if you agree.

Do You Have Time for Wealth? - A serious question and some tough love. Do you actually have time for wealth? I'm not talking about investment horizon here - I'm talking about priorities.

Are You Overlooking This Critical Source of Investing Returns? - I love giving myself huge discounts on my stocks, but successful investing is not just about the big, manufactured discounts. Don't underestimate the incredible power of simply owning world class businesses in the first place.

Why Bear Markets Don't Matter When You Own a Great Business - Easily spooked market participants see a bear market and panic. True investors in high quality businesses ignore bear markets and recessions and earn more income every year regardless of economic environment.

Icahn vs. Ackman - Why I'm a Leveraged Investor
Blame the Rich . . . Or Learn from Them
Economic Forecasting - The Sham of Predicting the Economic Future
SodaStream Analysis - Should Coke and Pepsi Be Nervous?
3 Best Stocks to Buy for Your Kids and for You
Problems with Diversification - The Case for a Concentrated Portfolio
When Will the Next Secular Bull Market Begin?
Investing for Income - 3 Methods
Volatility Risk: Volatility is Not Risk
How to Invest in a Secular Bear Market
Portfolio Rebalancing vs. Long Term Investing
Divided Government, the Stock Market, and Long Term Investors
Investing in Index Funds: 3 Major Drawbacks
The Benefits of a Bear Market
Take a Break from the Stock Market


ALTERNATIVE INVESTING WITH OPTIONS

How to Gain a Permanent Edge in the Stock Market - Without some kind of serious and permanent edge in the market, you're at serious and permanent risk - in this article I detail the structurally advantaged strategies I use to guarantee my own serious and permanent advantage in the stock market, and why I almost never lose money in the stock market (even when I'm wrong).

Why Winning 90% of Your Trades Is Not Enough - One of the questionable "me too" marketing messages I see a ton in option trading circles is the weird claim that someone's system has a 90% winning track record. Here's why I'm not impressed - and you shouldn't be either.

Best Option Trading Strategies - What Are Structurally Advantaged Trades?
I spend a lot of time talking about "Structurally Advantaged" trades. And what does that mean? It means that I can make great returns when I'm "right" on the trade, and still make decent to good returns if I'm "wrong." Here's how it's possible.

Option Trading Strategies for High Yield Income Investors - Learn how conservative, investing-oriented option strategies can provide high yield current income without the high risk.

How I Locked In a 44.05% Discount on KO Stock - In this article I show how I used low risk option trades to acquire 75 shares of Coca-Cola for about half the price regular investors paid.

Winning Options Strategies - In this article, I explore how and why I rarely book a trading loss at the end of the day writing or selling puts.

Buy and Hold and Cheat - Buy and Hold is an often maligned investing approach, and not without reason. But learning to incorporate savvy, investing-oriented option trading strategies into your long term portfolios changes everything and gives you an unfair advantage over Mr. Market and other investors.

Adjusted Cost Basis with Options - In a straightforward, plain vanilla, buy and hold world, the only opportunity you get to lower the cost basis on your holdings is to wait for the stock to go down and then buy more shares. But through the strategic use of options, you gain the opportunity to repeatedly lower your cost basis regardless of market conditions.

Diversification and Options - The important question isn't whether there are ways to diversify your options portfolio, but rather how effective these techniques are at achieving the underlying benefits of diversifying? There are essentially four approaches for diversifying options or an options portfolio.

Using Options for Income - 2 Leveraged Investng Methods - In this article, I share a couple of Leveraged Investing methods of using options for high yield income.

Pretend You're Warren Buffett - The Pretend You're Warren Buffett Approach is very simple. You simply take your favorite strategies from The Essential Leveraged Investing Guide, and you employ them on your favorite stocks from among those that are currently held by Berkshire Hathaway.



RETIREMENT
Can You Trade Options in an IRA?
Should You Trade Options in an IRA?
Tax Advantages of Trading Options in an IRA
Why I'm Not Saving For Retirement - Part 1 - Investing vs. Retirement Savings
Why I'm Not Saving For Retirement - Part 2 - Building Wealth vs. Saving for Retirement
Why I'm Not Saving for Retirement - Part 3 - Investing Returns vs. Retirement Drawdowns
Retirement Investment Options


Reprinted Articles

Stock Option Education: Beware the Hype (Kerry Given)



External Articles and Links

How Many Options Actually Expire Worthless?
5 Value Traps to Avoid Right Now (Motley Fool promotional article)
Warren Buffett's Inner Scorecard (Thinking Investing Blog)
Buying Like Buffett Beats Investments in Berkshire (Bloomberg)
Strategies For Investing When Inflation Looms (LA Times)
AAPL - A Case Study of Option Pins (RiskReversal.com)




free exclusive value investing with options report




DOWNLOAD HERE



Warren Buffett Zero Cost Basis Portfolio Current Equity Holdings:

KO - 125 shares
KMI - 100 shares
BP - 100 shares
MCD - 30 shares
JNJ - 25 shares
GIS - 25 shares
PAYX - 25 shares

Open Market Purchase Price: $20,071.83

Less Booked Option Income: $16,341.71

Tot. Discount: 81.42%
Adj. Div. Yield: 19.59%

LEARN MORE HERE